Host country institutional pressures and cross-border relationship governance

This study examines the effects of transaction cost, strategic positioning and institutional factors on the governance of international relationships. A firm's product differentiation strategy and export market ethnocentricity are identified as antecedents to specific investments, whereas state influences in the export market are identified as an antecedent to relationship governance. The hypotheses are empirically tested on a sample of 160 international business-to-business relationships. The results show that both product differentiation and export market ethnocentricity impact the level of specific investments, and state influences make it difficult to use both formal contracting and relational norms as governance mechanisms. Furthermore, specific investments made by the supplier are positively related to formal contracting, and product differentiation is positively related to relational norms.

Research highlights▶ Two institutional dimensions are considered: ethnocentricity and state influences. ▶ The hypotheses are tested on data from 150 small and medium-sized exporters. ▶ Differentiated products need to be supported with specific investments. ▶ Exporters seem to avoid making specific investments in ethnocentric markets. ▶ State influences reduce reliance on both formal contracting and relational norms.